Global Regime Divergence: Why the World Trade Regime Has Become More Legalized While the Financial Regime Has Become Less Legalized

Abstract

The international trade and finance regimes exhibit different levels of legalization. The trade regime is made up of treaties, whereas the financial regime, in contrast, is ruled by agreements that are informal. This difference reflects the different institutional strategies that were successfully pursued by each group of globalists in their respective area over the last fifty years: exporters worked in close relation with their government to build a regime able to contain protectionist opposition at home and provide access to markets abroad; bankers, in contrast, accessed world markets by pressing for the repeal of government regulation at home and intergovernmental regulation abroad. Beyond offering an explanation for the institutional differences between the trade and financial regimes, the study makes three general contributions to the governance literature. First, the formal-informal dimension is shown to be part of a larger list of divergent traits between two broad ideal types of governance, labeled law-based and market-mediated. Second, the factors that account for the divergence between trade and finance also generalize to other regimes in the areas of economics, the environment, human rights, and security. Third, the study offers a typology of informal governance that cuts through the current distinction between trans-governmental networks and private governance.